In mid-September a chief economist at an international bank in São Paulo calculated that the market was pricing an 85% chance that Marina Silva would beat incumbent president Dilma Rousseff in October’s elections.

“That was too high,” says the economist, even allowing for optimism that followed Silva’s initial strong polling results. Rousseff has rea-established a marginal lead in the polls. The result looks like it will be tight and many in the finance community are still optimistic that the ‘anyone but Dilma’ candidate will win: they point to the equal airtime that the final two candidates get in the three weeks before the decisive election as cause to believe that Rousseff can still be beaten.

That may be so. But the bigger miscalculation would be to assume that, if she is elected as the next president, Silva would be able to do much about the serious macro-economic situation that Brazil faces. Silva would be president, but without a natural powerbase in Congress, and forging a coalition that would enable her to introduce structural reform looks difficult, to say the least.

At best, a Silva presidency would give business confidence an immediate positive jolt, which could help growth that is otherwise being pressured downward by high interest rates (which may need to be raised higher still if the central bank is to re-establish its inflation-fighting credibility), rising unemployment and will be further hit by the probable need for short-term tax increases (thanks to a deteriorating fiscal position).

Also, the best chance for the country’s economy becoming competitive would be through devaluation – which would add to the inflationary pressures that will be brought by the likely end to price controls on gasoline and the subsidy of domestic electricity consumption.

Silva – and in practice her advisers – may be able to improve short-term economic management but they will face a very difficult economic situation from which to begin. Desperately needed longer-term changes to fiscal policy, to address supply-side bottlenecks (infrastructure and human capital) and efforts to improve longer-term growth rates by increasing investment rates will be almost certainly beyond her political gift.

The irony is, Brazil may have more chance of structural change with a second Rousseff government, who would at least command a majority coalition, should she decide to change economic policy, along with her already jettisoned minister of finance. But that, like the predictions of a Silva victory, really aren’t worth betting on.

Magazine

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